Activision Blizzard Report-1-2

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					                                                                                                       November 30, 2011
                                                                                                   Consumer Discretionary



                                                                 Activision Blizzard Inc.
                                               Ticker: _ATVI____                                       Recommendation: Hold

                                               Current Price: $11.75                                      Implied Price: $13.95


                                               Investment Thesis
Key Statistics
52 Week Price Range          $10.40 - $14.40                  Activision Blizzard is in a strong position to continue profiting
                                                              from in place franchises such as Call of Duty and World of
50-Day Moving Average                $12.92                   Warcraft

Estimated Beta                         0.72                   Increase in company digital sales should outpace competitors
                                                              leading to a reduction in Cost of Goods Sold and higher margins
Dividend Yield                         1.4%
                                                              The industry performance is picking up in coming years due to
Market Capitalization         $13.44 Billion                  increase in technology and gamer demographics

3-Year Revenue CAGR                 13.69%                    New company focus on proven franchises will increase company
                                                              efficiency and continued success in both console and online
Trading Statistics                                            gaming
Diluted Shares Outstanding      1.18 Billion

Average Volume (3-Month)       10.13 million
                                                                     Activision Blizzard Inc. (5- Year)
Institutional Ownership             33.90%
                                                 $20.00                                                                      80000000
Insider Ownership                   61.11%
                                                 $18.00                                                                      70000000
EV/EBITDA                             8.41x      $16.00
                                                                                                                             60000000
Margins and Ratios                               $14.00
                                                 $12.00                                                                      50000000
Gross Margin                           59%
                                                 $10.00                                                                      40000000
EBITDA Margin                          24%        $8.00                                                                      30000000
Net Margin                             15%        $6.00
                                                                                                                             20000000
Debt to Enterprise Value                NA        $4.00
                                                  $2.00                                                                      10000000
Leverage Ratio                          NA
                                                  $0.00                                                                      0
                                                      Oct-06        Oct-07       Oct-08       Oct-09       Oct-10
                                                              Volume           Price          50-Day Avg             200-Day Avg


Covering Analysts: Ryan Swift

  Email: Ryans@uoregon.edu
                                                          1                    University of Oregon Investment Group
University of Oregon Investment Group                                                            November 30, 2011




                                        Business Overview
                                                  Activision Blizzard, Inc. (ATVI) is a developer, publisher, and
                                        distributor of online, personal computer, console, and handheld interactive
                                        entertainment. It was formed July 9, 2008, when Activision, creator of the
                                        popular Call of Duty and Guitar Hero video games merged with Blizzard
                                        Entertainment, creator of such games as World of Warcraft, Starcraft and
                                        Diablo. Together the two represented the largest share at 9.2% of the video
                                        game publishing industry. Activision Blizzard is a controlled company due to
                                        Vivendi owning over 50% of its shares. There are three main operating
                                        segments of Activision Blizzard.

                                        Activision Publishing (57%of revenue)
                                        Activision publishing, headquartered in Santa Monica California develops,
                                        publishes, markets and sells interactive entertainment products through retail
                                        channels or digital downloads. It's portfolio of game franchises include Call of
                                        Duty, Guitar Hero, Cabala's Hunting, Marvels Spider-Man and X-Men , James
                                        Bond, Transformers, and Skylanders Spyros Adventure. Activision Publishing is
                                        focusing its investments on proven intellectual properties to deep, high quality
                                        content for online multiplayer gaming experiences. This segment of the
                                        companies often licenses games form third party developers in search of the
                                        next big thing. The trend of this market is to move to online content that is going
                                        to push margins higher. This is being partly combated by the industry trend to
                                        increase the expenditure on large box office style marketing campaigns for large
                                        releases such as Call of Duty Modern Warfare 3. The Call of Duty franchise
                                        continues to set first day and total franchise sales.

                                        Blizzard Entertainment (34% of Revenue)
                                        Head quartered in Irvine California Blizzard entertainment was established in
                                        1994. The companies mission statement is simple "Dedicated to the most epic
                                        entertainment experiences...ever". They have achieved this by developing and
                                        publishing such games as World of Warcraft, Starcraft and Diablo. These tittles
                                        continue to set records with the last World of Warcraft expansion selling 3.3
                                        million copies in the first 24 hours. This segment of Activision Blizzard lowers
                                        the companies Beta by providing a constant income stream from the monthly
                                        subscription to play World of Warcraft. On top of monthly subscriptions,
                                        players will pay for the introduction of expansion packages. Starcraft and
                                        Diablo do not have a monthly fee but the actual game costs are around twice as
                                        much as World of Warcraft. Blizzard Entertainment is in charge of managing
                                        battlenet, the first online gaming service that allows gamers to join multiplayer
                                        games, chat and download free and paid material. A subscription to Battlenet is
                                        free. Blizzard Entertainment has also come out with related trading card games,
                                        board games, apparel and books.




                                                                                                               UOIG 2
University of Oregon Investment Group                                                            November 30, 2011
                                        Activision Blizzard Distribution (9% of Revenue)
                                        The distribution segment provides logistics, warehousing, and sales distribution
                                        services in Europe to its own publishing operations, third party publisher of
                                        software and third party manufacturers of interactive entertainment hardware.


                                        Strategic Positioning
                                        Activision Blizzard is strategically positioned with what they call "leading
                                        market positions across all categories" of the video game industry. The
                                        company's main strategic advantage is the success of its existing franchises.
                                        With Call of Duty being the most successful gaming franchise of all time
                                        Activision Blizzard is well positioned to continue profiting from and growing
                                        the franchise through increase user engagement as the trend in the industry is to
                                        focus on major titles. Activision's World of Warcraft franchise requires a
                                        monthly subscription that creates a constant stream of revenue. This allows the
                                        company to focus else ware to find "the next big thing" for continued success.
                                        The new release of Call of Duty Elite online gaming environment is in place to
                                        create a constant stream of cash flows. The company's new focus on proven
                                        material will improve efficiency and continued success. The company is mildly
                                        vertically integrated with its own distribution throughout Europe and several in
                                        house developers.

                                        Business Growth Strategies
                                        Activision Blizzard Inc, focuses on four main areas to continue growth.


                                        Continue to Improve Profitability,
                                        Effectively manage risk and increase operating leverage and efficiency by
                                        focusing on core properties, proven franchises, proven genres, and their ability
                                        to leverage the growth of online and digital revenue opportunities.

                                        Create Shareholder Value,
                                        Continue to provide value to their shareholders through stock repurchases and
                                        cash dividends by growing operating margin, maintaining a strong balance sheet
                                        and generating strong cash flows

                                        Grow Through Continued Strategic Acquisitions and
                                        Alliances,
                                        Expand the company resources and portfolio of intellectual property licenses
                                        through acquisitions, strategic relationships, and licensing agreements. A major
                                        focus is on acquisitions of or investments in interactive experience software
                                        development firms as success in the industry is heavily dependent of the ability
                                        to create new successful titles.

                                        Focus on Delivery of Digital Content and Online Services,
                                        Activision Blizzard is continually shifting towards digital delivery of content to
                                        their gamers which can be seen through their World of Warcraft and Call of
                                        Duty online communities. This will help lower their cost of sales and drive
                                        margins. Also, being able to provide online product innovations such as
                                        additional online content and increased social connectivity will help build
                                        lasting relationships with its gamers.




                                                                                                              UOIG 3
University of Oregon Investment Group                                                            November 30, 2011

                                        Activision blizzard has chosen to focus the majority of its time and finances on
                                        established and proven content such as the World of Warcraft and Call of Duty
                                        franchises while making small acquisitions to try and find "the next big thing".
                                        The most recent being Skylanders Spyro's Adventure.


                                        Industry

                                        Overview
                                        Activision Blizzard's main line of business is in the Video Game Software
                                        Publishing industry. It is the largest player in the industry at 9.2% followed
                                        closely by Nintendo and Electronic Arts Inc. It is a 28.8 billion dollar industry
                                        that experienced 5.5% annual growth in the last five years and is expected to
                                        grow at 7.8% annually in the next five years. The industry is still in a growth
                                        stage as it is fairly new and still reaching new demographics. It can be expected
                                        that industry growth will outpace the US economy in the near future. Capital
                                        intensity in the industry is low as it is labor intensive industry. On average for
                                        every dollar spent on capital there is $9.23 spent on labor. Capital Expenditures
                                        are generally on office space and server computers. The capital expenditures are
                                        expected to rise looking forward with the need for larger servers for online
                                        gaming. Regulation in the industry is low with firms subscribing to voluntary
                                        ratings performed by the Entertainment Software Ratings Board but in 2011 the
                                        supreme court ruled that the government does not have the right to "restrict the
                                        ideas to which children may be exposed". This means that gamers of any age
                                        can buy a game with any rating. This industry is highly competitive with
                                        companies in direct competition for a highly skilled work force, aggressive
                                        marketing and franchising tactics, and obtaining the rights to publish newly
                                        developed games. Barriers to entry are high in this industry due to a high level
                                        of patents and strong established relationships with developers.

                                        Drivers.
                                        The two key drivers for this industry is per capita disposable income. As
                                        individuals disposable income increases they have more money to spend on
                                        expensive items for leisure time, such as video games and video game consoles.
                                        The other main driver for the industry is the time spent on leisure activities. As
                                        Activision Blizzard's games directly compete for individuals leisure time, the
                                        more leisure time that is available, the more time can be spent playing video
                                        games. This driver is expected to decrease looking forward as individuals return
                                        to jobs they are qualified for. Additional drivers include the availability of a
                                        highly skilled work force which is driven by the number of college students with
                                        a lag time of about two year. This drivers is expected to slow looking forward
                                        which will lead to higher expenditure on employee salaries. The amount of
                                        broadband internet connections has a direct effect on the industry as the trend is
                                        to play hit tittles on online multiplayer modes.


                                        Trends
                                        There are several new trends changing the way video game are being played.

                                        Blockbuster releases
                                        Recently video game releases have been shifting to large blockbuster releases
                                        with more capital being spent on marketing. This is in response to the shift in
                                        consumer preferences to spend their gaming time on a smaller number of large




                                                                                                              UOIG 4
University of Oregon Investment Group                                                             November 30, 2011
                                        titles such as Call of Duty, Halo, and World of Warcraft. This trend is also
                                        reducing the number of smaller titles that are being introduced in the industry.

                                        Online Game-play
                                        An increase in demand for online game play is changing the video game
                                        industry in several ways. The largest change is that it is changing the way that
                                        content is being delivered. Games and expansion packages can be purchased
                                        online which reduces material costs for business's in the industry and drives up
                                        margins. This is also leading to a change in some business's revenue models to a
                                        subscription based model. This can be seen by the introduction of the new Call
                                        of Duty Elite. While there is a free version at your disposal it is Activision's
                                        hope that you will opt for the upgraded version on a subscription bases.

                                        These new opportunities are being partially offset by the need for increased
                                        security expenditures. As interactive online communities grow so does the threat
                                        of a cyber attack. In 2011 Sony's Playstation network experienced an attack
                                        where millions of individuals personal information was stolen and the system
                                        was down for around 23 days.

                                        New Customers
                                        The introduction of the Nintendo Wii widened the customer base of video
                                        games. With the Wii came the introduction of fitness and mental sharpening
                                        games such as "Zumba Fitness" and "Big Brain Academy". This is broadening
                                        the target market for video games to include women, younger children and
                                        adults of age 45years+. Women are now 40% of video game players.

                                        Cross Platform Play,
                                        The industry is expected to shift towards the cross-platform gaming. This means
                                        that Individuals playing online on a Microsoft XBOX system can play versus
                                        someone using a Sony Playstation. Activision Blizzard recently released the first
                                        version of cross platform gaming with Skylanders, Spyro's Adventures.

                                        Competition
                                        Video game software publishing is a highly competitive industry in many
                                        aspects.

                                        Talented workforce.
                                        Successful firms in this industry are ones that are able to create hit titles so the
                                        necessity for a talented workforce is high. Many software development firms
                                        locate themselves in close proximity to top universities.

                                        Brand Names,
                                        Customer loyalty is high so firms need to continually create value for their
                                        gamers in the form of new and improved gaming content. The inability to do so
                                        can ruin a brand name and have severe consequences for the firm.

                                        Adapt to changes in technology,
                                        Gaming technology is rapidly changing and the ability of a firm to adapt to the
                                        changes is crucial. First mover advantage in this area can be large. This can be
                                        seen through the Nintendo Wii. Although the Sony Playstation and Microsoft
                                        Xbox have recently been able to take advantage of similar technology, Nintendo
                                        received a large first mover advantage. Looking forward it will be important for
                                        firms to take advantage of 3D technologies and cross platform gaming.




                                                                                                               UOIG 5
University of Oregon Investment Group                                                            November 30, 2011
                                        Intellectual Property,
                                        This is extremely important in order to protect your ideas from competing firms.
                                        Since many firms have patents on their products it creates a large barrier to entry
                                        for startups.

                                        Relationships,
                                        Many firms in the industry have in house developers but most firms rely on third
                                        party developers to create the games to publish. The establishment of these
                                        relationships is a key to continued success. This creates another large barrier to
                                        entry for new publishers as developers have strong relationships already in
                                        existence.

                                        Consoles,
                                        Software publishers that also create consoles have a competitive advantage
                                        because they can dual market their products. It also helps in the establishment of
                                        a brand name.


                                        Management and Employee Relations

                                        CEO - Robert A Kotick
                                        Director and CEO of Activision since February 1991, Mr. Kotick become CEO
                                        of Activision Blizzard after the merger with Blizzard in 2008. Mr. Kotick owns
                                        3,828,221 shares of Activision Blizzard with a market value of $44,981,597.


                                        Vice Chairman - Michael J. Griffith
                                        Former president and CEO of Activision publishing Mr. Griffith was appointed
                                        to vice Chairmen in March 2010. Before joining Activision Mr. Griffith held
                                        several executive positions with Procter and Gamble from 1981 to 2005. He has
                                        a B.A. degree from Albion college and an M.B.A from the University of
                                        Michigan. Mr. Griffith owns 57,108 with a market value of $671,019.

                                        CEO Activision Publishing - Eric Hirshberg
                                        Appointed to CEO in September 2010, Mr. Hirshberg was hired from Deutsch
                                        LA, an American marketing firm where he served many executive positions. Mr.
                                        Hirshberg received his B.F.A degree from University of California at Los
                                        Angeles. Mr. Hirshberg owns 62,564 share with a market value of $735,127.

                                        Management Guidance
                                        Historically, management beats EPS guidance. In order for the stock price to go
                                        up it takes a significant amount of surprise above guidance. This also means that
                                        if they miss guidance by a small amount that it can have a large negative impact
                                        on the stock price. Last quarter, even though ATVI beat guidance negative news
                                        about their World of Warcraft subscription base lead to a significant drop in
                                        share price. Management should continue to give beatable guidance.




                                                                                                               UOIG 6
University of Oregon Investment Group                                                            November 30, 2011
                                        Portfolio History
                                        Svigals
                                        The Svigals portfolio bought 225 shares on 11/10/2008 at a cost basis of $12.58
                                        per share and again purchased 91 share on 8/17/2010 at a cost basis of $10.99 a
                                        share. The first purchase has realized a negative 5.5% and the second purchase
                                        is up 8% since its purchase.

                                        Tall Firs
                                        The Tall Firs portfolio bought 1500 shares of ATVI on 11/14/2008 at a cost
                                        basis of $12.20 per share. We still own all 1500 shares and it is currently up
                                        .33% since we bought it. It accounts for about 2.73% of the portfolio.

                                        Recent News
                                        One-day sales tally sets new video game record
                                        "Activision Blizzard's "Call of Duty: Modern Warfare 3" racked up more than
                                        $400 million in sales on its first day in stores in North America and the United
                                        Kingdom, setting a video game industry record. Activision's biggest holiday title
                                        sold 6.5 million units in a single day after going on sale early this week,
                                        surpassing last year's record of 5.6 million "
                                         ~ Reuters
                                        Consensus was around 6 million units on the first day. The extra half million in
                                        sales was not a large enough surprise to Wallstreet as ATVI was down around
                                        2% on a day when the market was up.

                                        Blizzard: World of Warcraft Subscriptions Dropping
                                        "Activision also noted that its other gaming juggernaut, World of Warcraft,
                                        could finally be approaching its denouement. Blizzard president and co-founder
                                        Mike Morhaime revealed World of Warcraft has lost 2 million subscribers in the
                                        past year"
                                        ~ Gamespy
                                        The majority of the loses are coming from the east. This should be combated by
                                        the release of the new World of Warcraft Mists of Pandaria which has been
                                        suggested to be targeted at the eastern market. The losses related to the reduction
                                        in current subscriptions have been priced in.

                                        Catalysts
                                        Upside
                                                 Increase in disposable income
                                                 Success of new releases
                                                 Good news about European debt crises
                                                 Successful holiday season
                                                 Above consensus growth in disposable income
                                                 above expected margin growth

                                        Downside
                                                 Reduction in World of Warcraft subscriptions
                                                 Bad news about European debt crises
                                                 Poor Holiday season
                                                 Below consensus growth in disposable income




                                                                                                               UOIG 7
University of Oregon Investment Group                                                            November 30, 2011




                                        Comparable Analysis
                                        A relative valuation was performed in order to price Activision Blizzards shares
                                        based on its peers. Finding comparable companies was difficult for Activision
                                        Blizzard as many of its competitors are privately owned, foreign or have
                                        experienced poor performance leading to low EBIT and EBITDA margins.

                                        The multiples used were EV/Gross Profit and EV/ EBITDA. EV/Gross profit
                                        was used to because the ability to keep costs down is going to be a driver for
                                        success looking forward. EV/EBITDA was used as this is the best indicator of a
                                        company's cash flows. A 50% weighting was given to both EV/Gross Profit and
                                        EV/EBITDA

                                        Electronic Arts, ERTS 40% weighting
                                        Incorporated in 1982, Electronic Arts is Activision Blizzards largest competitor.
                                        In the early 2000's due to several acquisitions of developers, EA was one of the
                                        world's largest third party publishers. One of EA's main strategic advantages it's
                                        near monopoly on the sports game industry. Through licensing contracts, EA is
                                        the only company allowed to use NFL, ESPN and NCAA football licenses.
                                        Additionally it has non exclusive agreements with the NHL, NBA, and
                                        NASCAR. Outside of sports games, some of EA's notable game franchises
                                        include The Sims, Skate, Battlefield, Rack Band, Army of Two and many more.

                                        ERTS was chosen because it is Activision Blizzards biggest competitor, it has a
                                        similar product offering, similar capital structure and risk. Having a like
                                        business model means that ERTS is going to go about generating cash flows in a
                                        similar manner. This company was given a 40% weighting because of its total
                                        similarity in business and its similarity in margins.

                                        Intuit 40% weighting
                                        "Intuit, incorporated in March 1984, is a provider of business and financial
                                        management solutions for small and medium-sized businesses, consumers,
                                        accounting professionals and financial institutions. The Company’s products and
                                        services, including QuickBooks, Quicken and TurboTax, simplify small
                                        business management and payroll processing, personal finance, tax preparation
                                        and filing and personal finance."~Reuters

                                        Intuit was used as a comparable due to its similar risk, size and line of business.
                                        Since both companies create computer software they are subject to many of the
                                        same risks and competitive forces. Intuit as given a 40% weighting due to its
                                        similarity in size, risk and margins.

                                        Microsoft 20% weighting
                                        "Microsoft Corporation, incorporated in 1981, is engaged in developing,
                                        licensing and supporting a range of software products and services. Microsofts
                                        product lines include operating systems for personal computers (PCs), servers,
                                        phones, and other intelligent devices; server applications for distributed
                                        computing environments; productivity applications; business solution




                                                                                                               UOIG 8
University of Oregon Investment Group                                                           November 30, 2011
                                        applications; desktop and server management tools; software development tools;
                                        video games, and online advertising." ~Reuters

                                        Microsoft's exposure to the video game industry include the Xbox 360 gaming
                                        and entertainment console, Kinect for Xbox 360, Xbox 360 accessories, and
                                        Microsoft PC hardware products

                                        Microsoft was used as a comparable because it also operates in the computer
                                        software industry. Microsoft has similar risk to Activision Blizzard and also has
                                        some exposure to the video game industry with its x-box 360. Microsoft
                                        received only a 20% weighting due to its differences in business operations and
                                        overall size.


                                        Discounted Cash Flow Analysis
                                        The Discounted Cash flow analysis is an attempt to value the share price of a
                                        company based on the intrinsic value. This is done by discounting the expected
                                        future free cash flows back to the present value using a discount rate that
                                        represents what an investor would expect to earn on an equally risky asset else
                                        ware.


                                        Beta
                                        To find the company beta four betas were equally weighted. A three year and
                                        five year weekly beta against the S&P 500 were run. The three and five year
                                        ranges were chosen because of the acquisition of Blizzard by Activision
                                        approximately three years ago. It is appropriate to have a blend of the beta of
                                        Activision before and after the acquisition of Blizzard due to the addition of
                                        World of Warcraft and its constant stream of cash flows to the Activision
                                        portfolio. For the other two betas a five and three year weekly Vasicek beta was
                                        computed. The Vasicek beta adjusts the beta to take into consideration the
                                        industry beta and the standard errors. The companies used to compute the
                                        industry beta were Nintendo, Konami Corp, Electronic Arts, Take-Two
                                        Interactive Software, Intuit and Microsoft.

                                        Revenue model
                                        To predict future revenues, the companies goods and services were broken down
                                        into five categories. The segments were forecasted by reviewing growth in
                                        previous years and adjusting based on expected industry outlook, the present
                                        position of each segment and its alignment with industry trends and then
                                        trending the growth rate towards 3%.

                                        Massive Multiplayer Online Role Playing Game- MMORPG (28% of revenue)
                                        This is comprised of sales related to Blizzards World of Warcraft franchise.
                                        Growth is expected to slow looking forward. World of Warcraft lost
                                        approximately 800,000 subscribers in the east last quarter. They are expected to
                                        gain them back with the release of the new expansion Mists of Pandaria.

                                        PC and Other (7% of revenue)
                                        This includes Blizzard's Diablo and Starcraft. There are no major changes for
                                        this segment looking forward.

                                        Console (52% of revenue)




                                                                                                             UOIG 9
University of Oregon Investment Group                                                              November 30, 2011
                                        All games and services related to game play on Xbox 360, Playstation 3,
                                        Nintendo Wii and other consoles that may arrive in the future. This is expected
                                        to remain Activision Blizzards largest segment.

                                        Handheld (4% of revenue)
                                        Publishing for handheld devices such as the Apple i-phone, i-pad and other
                                        emerging mobile devices. With the rapid increase in smart phone technology
                                        this segment is expected to see rapid growth in the near future.

                                        Distribution (9% of revenue)
                                        This segment is related to the warehousing, logistics and distribution of products
                                        in Europe and is expected to decrease as a % of revenue due to the increase in
                                        digital sales.

                                        Expenses
                                        COGS were broken down into four segments; Software royalties and
                                        amortization, Product costs, MMORPG and intellectual properties. They were
                                        projected out based on percent of revenue taking into consideration industry
                                        trends and management guidance. Product costs are expected to be reduced
                                        permanently with the industry trend of increasing digital sales. Other expenses
                                        including Product Development, Sales and Marketing, General and
                                        Administrative, impairment of intangible assets and restructuring were
                                        forecasted in the same way. Special considerations were taken for several line
                                        items. Sales and marketing is estimated to rise over time with the transition to
                                        Blockbuster style releases. General and Administrative expenses are expected to
                                        decrease as they have been high in recent years due to the acquisition of
                                        Blizzard. Product development is expected to decrease in the near future due to
                                        the businesses focus on core titles but it is likely to rise in the future due to the
                                        need for a new hit as many of Activision Blizzards titles are aging.

                                        Working Capital
                                        The majority of working capital was projected on percent of revenue. Accounts
                                        receivable was forecasted using days Inventory Outstanding A/R. Line items
                                        were normalized and projected forward based on guidance and industry trends.

                                        Acquisitions
                                        Activision Blizzards growth strategy is reliant on acquisitions. Looking forward
                                        acquisitions is projected to grow as a percent of revenue in the form of several
                                        small acquisitions. Activision Blizzard is not expected to make any acquisitions
                                        as large as that of Blizzard.

                                        Capital Expenditures
                                        Capital Expenditures are expected to increase looking forward as the need for
                                        larger servers for online interactive gaming environments.

                                        Depreciation and amortization
                                        Depreciation and amortization was projected using a straight line depreciation
                                        schedule. 100% of capital expenditures and 60% of acquisitions were
                                        depreciated.




                                                                                                               UOIG 10
University of Oregon Investment Group                                                            November 30, 2011




                                        Recommendation
                                        Activision Blizzard's is not being properly valued by the market. Although the
                                        relative valuation says that it is overpriced this could be due to poor comparable
                                        companies or an undervaluation of the sector as a whole. This is why I chose to
                                        weight the comparables analysis at 30% and the Discounted Cash Flow
                                        valuation at 70%. According to the Discounted Cash Flow valuation Activision
                                        Blizzard is underpriced by 30%. This is due to the market not recognizing its
                                        curing positions that are in line with industry trends and possibly an
                                        undervaluation of the sector as a whole. This is why I am recommending a hold
                                        for Activision Blizzards for both the Tall Firs Svigals portfolios.




                                                                                                            UOIG 11
 University of Oregon Investment Group                                                                 November 30, 2011
Appendix 1 – Comparables Analysis
Comparables Analysis                                                                     ATVI               ERTS              TTWO             INTU             MSFT
                                                                                       Activision                           Interactive
($ in millions)                                                                       Blizzard Inc      Electronic Arts    Software, Inc      Intuit Inc       Microsoft
Stock Characteristics           Max           Min      Weight Avg.       Median                            40.00%             0.00%            40.00%           20.00%
Current Price                     $49.27        $0.00       $32.90         $20.83             $11.88              $20.83            $13.27            $49.27         $24.30
50 Day Moving Average               52.10       12.85         35.36          24.78             12.85               23.04             14.30             52.10          26.51
200 Day Moving Average              49.84       11.88         34.08          24.13             11.88               22.48             14.36             49.84          25.78
Beta                                 1.12         0.72         0.41           1.07              0.72                1.02               1.12
Size
Short-Term Debt                    500.00         0.00        200.00          0.00              0.00               0.00               0.00          500.00             0.00
Long-Term Debt                  11,927.00         0.00      2,585.00          0.00              0.00               0.00               0.00          499.00        11,927.00
Cash and Cash Equivalent         9,610.00         0.00      2,582.80        722.00          2,812.00             930.00             280.36          722.00         9,610.00
Non-Controlling Interest             0.00         0.00          0.00          0.00              0.00               0.00               0.00            0.00             0.00
Preferred Stock                      0.00         0.00          0.00          0.00              0.00               0.00               0.00            0.00             0.00
Diluted Basic Shares             8,504.18         0.00      1,959.44        315.09          1,180.87             331.43              97.11          315.09         8,504.18
Market Capitalization          206,651.63         0.00     50,006.77      6,576.31         14,028.73           6,576.31           1,252.97       15,114.81       206,651.63
Enterprise Value               210,218.63         0.00     50,670.57      6,175.31         11,216.73           6,175.31             972.61       15,391.81       210,218.63
Profitability Margins
Gross Margin                      82.58%       37.93%        72.39%        68.50%               59%                60%                38%              83%             77%
EBIT Margin                       41.40%         1.98%       21.86%        16.97%               20%                 4%                 2%              30%             41%
EBITDA Margin                     45.33%         3.42%       27.00%        22.42%               24%                 8%                 3%              36%             45%
Net Margin                        33.01%       (4.00%)       11.59%         6.29%               15%                -4%                -4%              16%             33%
Credit Metrics
Interest Expense                  $60.00      ($899.00)     ($158.35)        $7.58             $0.00            ($6.38)           $21.53            $60.00         ($899.00)
Debt/EV                            6.49%         0.00%         3.73%         2.84%            0.00%              0.00%             0.00%             6.49%            5.67%
Leverage Ratio                       0.71          0.00          0.36          0.18             0.00               0.00              0.00              0.71             0.37
Interest Coverage Ratio         2335.00%    (4998.43%)    (1782.66%)    (1717.17%)                 0      -49.98433093       1.520821723              23.35    -35.86429366
Operating Results
Revenue                        $71,120.00      $957.93    $17,273.60     $3,812.00         $5,520.00          $3,773.00           $957.93        $3,851.00       $71,120.00
Gross Profit                    54,905.00        363.31    13,155.40      2,718.00          3,261.00           2,256.00            363.31         3,180.00        54,905.00
EBIT                            29,444.00         18.99     6,410.40        652.00          1,117.00             144.00              18.99        1,160.00        29,444.00
EBITDA                          32,242.00         32.75     7,136.40        860.00          1,333.00             319.00              32.75        1,401.00        32,242.00
Net Income                      23,478.00      (151.00)     4,888.80        298.36            804.00           (151.00)            (37.28)          634.00        23,478.00
Valuation
EV/Revenue                          4.00x         1.02x         2.84x         2.30x            2.03               1.64               1.02             4.00             2.96
EV/Gross Profit                     4.84x         2.68x         3.80x         3.28x            3.44               2.74               2.68             4.84             3.83
EV/EBIT                            51.22x         7.14x       23.89x         28.08x           10.04              42.88              51.22            13.27             7.14
EV/EBITDA                          29.70x         6.52x       13.44x         15.17x            8.41              19.36              29.70            10.99             6.52
EV/Net Income                      24.28x      (40.90x)       (4.86x)       (8.57x)           13.95             (40.90)            (26.09)           24.28             8.95




                                                                                                                   UOIG 12
  University of Oregon Investment Group                                                                                                                        November 30, 2011
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
($ in millions)                              2008A        2009A         2010A            2011 E          2012 E         2013 E         2014 E         2015 E         2016 E         2017 E         2018 E         2019 E         2020 E            2021 E
Total Revenue                                  3026.00     4279.00         4447.00          5320.09      $5,826.53      $6,271.20      $6,691.24      $7,092.29      $7,472.39      $7,816.40      $8,116.09      $8,365.94      $8,608.93         $8,850.81
% YoY Growth                                                41.41%          3.93%           19.63%          9.52%          7.63%          6.70%          5.99%          5.36%          4.60%          3.83%          3.08%          2.90%             2.81%
Cost of Goods Sold                             1839.00     2307.00         2126.00          1623.33       2,354.40       2,395.15       2,477.33       2,547.55       2,690.81       2,822.50       2,930.72       3,020.94       3,108.68          3,196.03
% Revenue                                      60.77%       53.91%         47.81%           30.51%         40.41%         38.19%         37.02%         35.92%         36.01%         36.11%         36.11%         36.11%         36.11%            36.11%
Gross Profit                                 $1,187.00    $1,972.00       $2,321.00       $3,696.76      $3,472.13      $3,876.05      $4,213.91      $4,544.74      $4,781.58      $4,993.90      $5,185.37      $5,345.00      $5,500.24         $5,654.78
Gross Margin                                   39.23%       46.09%         52.19%           69.49%         59.59%         61.81%         62.98%         64.08%         63.99%         63.89%         63.89%         63.89%         63.89%            63.89%
Selling General and Administrative Expense      735.00      939.00          884.00          1010.82        1153.78        1217.56        1309.64        1419.40        1506.95        1595.92        1679.97        1750.82        1823.51           1897.28
% Revenue                                      24.29%       21.94%         19.88%           19.00%         19.80%         19.42%         19.57%         20.01%         20.17%         20.42%         20.70%         20.93%         21.18%            21.44%
Product Development                             592.00      627.00          642.00           691.61         699.18         721.19         869.86         922.00         971.41        1016.13        1055.09        1087.57        1119.16           1150.61
% Revenue                                      19.56%       14.65%         14.44%           13.00%         12.00%         11.50%         13.00%         13.00%         13.00%         13.00%         13.00%         13.00%         13.00%            13.00%
Impairment                                        0.00      409.00          326.00           299.50         328.02         353.05         376.70         399.27         420.67         440.04         456.91         470.98         484.66            498.27
% Revenue                                       0.00%        9.56%          7.33%            5.63%          5.63%          5.63%          5.63%          5.63%          5.63%          5.63%          5.63%          5.63%          5.63%             5.63%
Restructuring                                    93.00       23.00               0.00         26.60          14.57          15.68          16.73          17.73          18.68          19.54          20.29          20.91          21.52             22.13
% Revenue                                       3.07%         .54%          0.00%             .50%           .25%           .25%           .25%           .25%           .25%           .25%           .25%           .25%           .25%              .25%
Earnings Before Interest & Taxes             ($233.00)     ($26.00)        $469.00        $1,668.23      $1,276.58      $1,568.57      $1,640.98      $1,786.34      $1,863.86      $1,922.27      $1,973.11      $2,014.72      $2,051.40         $2,086.50
% Revenue                                      -7.70%       -0.61%         10.55%           31.36%         21.91%         25.01%         24.52%         25.19%         24.94%         24.59%         24.31%         24.08%         23.83%            23.57%
Investment and other net income                  46.00       18.00              23.00
% Revenue                                       1.52%         .42%              .52%
Earnings Before Taxes                          (187.00)      (8.00)         492.00         1,668.23       1,276.58       1,568.57       1,640.98       1,786.34       1,863.86       1,922.27       1,973.11       2,014.72       2,051.40          2,086.50
% Revenue                                      (6.18%)      (.19%)         11.06%           31.36%         21.91%         25.01%         24.52%         25.19%         24.94%         24.59%         24.31%         24.08%         23.83%            23.57%
Less Taxes (Benefits)                           -80.00      -121.00             74.00        415.31         446.80         549.00         574.34         625.22         652.35         672.79         690.59         705.15         717.99            730.27
Tax Rate                                       34.33%      465.38%         15.78%           24.90%         35.00%         35.00%         35.00%         35.00%         35.00%         35.00%         35.00%         35.00%         35.00%            35.00%
Net Income                                   ($107.00)     $113.00         $418.00          1245.92        $829.78      $1,019.57      $1,066.64      $1,161.12      $1,211.51      $1,249.47      $1,282.52      $1,309.57      $1,333.41         $1,356.22
Net Margin                                     -3.54%        2.64%          9.40%           23.42%         14.24%         16.26%         15.94%         16.37%         16.21%         15.99%         15.80%         15.65%         15.49%            15.32%
Add Back: Depreciation and Amortization         385.00      347.00          198.00           119.27         108.63         120.69         131.70         142.52         153.19         163.65         173.52         182.61         190.74            198.87
Add Back: Interest Expense*(1-Tax Rate)          30.21      (65.77)             19.37             5.60
Operating Cash Flow                             308.21      394.23          635.37          1354.10         938.41        1140.26        1198.33        1303.64        1364.71        1413.12        1456.04        1492.18        1524.15           1555.09
% Revenue                                      10.19%        9.21%         14.29%           25.45%         16.11%         18.18%         17.91%         18.38%         18.26%         18.08%         17.94%         17.84%         17.70%            17.57%
Current Assets                                5,259.00     5,329.00        5,385.00         6692.04       7,869.55       8,478.25       9,066.19       9,616.68      10,154.49      10,621.98      11,029.23      11,368.76      11,698.97         12,027.67
% Revenue                                     173.79%      124.54%        121.09%          125.79%        135.06%        135.19%        135.49%        135.59%        135.89%        135.89%        135.89%        135.89%        135.89%           135.89%
Current Liabilities                           2,084.00     2,507.00        2,907.00         3386.59       4,082.21       4,393.76       4,688.05       4,969.04       5,235.35       5,476.37       5,686.34       5,861.39       6,031.63          6,201.10
% Revenue                                      68.87%       58.59%         65.37%           63.66%         70.06%         70.06%         70.06%         70.06%         70.06%         70.06%         70.06%         70.06%         70.06%            70.06%
Net Working Capital                          $3,175.00    $2,822.00       $2,478.00       $3,305.45      $3,787.34      $4,084.49      $4,378.14      $4,647.64      $4,919.14      $5,145.61      $5,342.90      $5,507.37      $5,667.34         $5,826.57
% Revenue                                     104.92%       65.95%         55.72%           62.13%         65.00%         65.13%         65.43%         65.53%         65.83%         65.83%         65.83%         65.83%         65.83%            65.83%
Change in Working Capital                    $1,751.68    ($353.00)       ($344.00)        $827.45        $481.89        $297.15        $293.65        $269.50        $271.50        $226.47        $197.29        $164.48        $159.96           $159.23
Capital Expenditures                             46.00       69.00              97.00         92.67         103.21         112.88         122.45         131.92         141.23         150.07         158.26         165.65         173.04            180.56
% Revenue                                       1.52%        1.61%          2.18%            1.74%          1.77%          1.80%          1.83%          1.86%          1.89%          1.92%          1.95%          1.98%          2.01%             2.04%
Acquisitions                                     67.40        0.00               0.00         26.60          29.13          31.36          33.46          35.46          37.36          39.08          40.58          41.83          43.04             44.25
% Revenue                                       2.23%        0.00%          0.00%             .50%           .50%           .50%           .50%           .50%           .50%           .50%           .50%           .50%           .50%              .50%
Unlevered Free Cash Flow                      -1556.87      678.23          882.37           407.39        324.17         698.87         748.78         866.76         914.61         997.50        1,059.91       1,120.23       1,148.10          1,171.04
Discounted Free Cash Flow                                                                                   296.80         596.27         595.32         642.17         631.46         641.76         635.45         625.85         597.72            568.13
EBITDA                                            359.0       601.0             1111.0        2359.8         1975.8         2289.8          2510.8         2708.3         2835.3         2938.4         3028.2          3102.3            3170.6            3237.1
EBITDA Margin                                      12%            14%            25%              44%             34%            37%            38%            38%            38%            38%            37%            37%             37%               37%




                                                                                                                                                                                 UOIG 13
 University of Oregon Investment Group                                                                  November 30, 2011


Appendix 3 – Revenue Model
                      2008      2009          2010       2011      2012      2013      2014      2015        2016       2017      2018      2019      2020      2021
MMORPG                1152.00    1248.00       1230.00   1516.24   1579.76   1642.95   1705.39   1766.78     1826.85    1885.31   1941.87   1996.24   2048.14   2093.20
% Growth                           8.3%         -1.4%     23.3%      4.2%      4.0%      3.8%      3.6%        3.4%       3.2%      3.0%      2.8%      2.6%      2.2%
% Total                           29.2%         27.7%     28.5%     27.1%     26.2%     25.5%     24.9%       24.4%      24.1%     23.9%     23.9%     23.8%     23.6%
PC and other growth     99.00     164.00        325.00    414.20    478.79    550.60    605.66    654.12      699.91     741.90    778.99    810.15    834.46    859.49
% Growth                          65.7%         98.2%     27.4%     15.6%     15.0%     10.0%      8.0%        7.0%       6.0%      5.0%      4.0%      3.0%      3.0%
% Total                            3.8%          7.3%      7.8%      8.2%      8.8%      9.1%      9.2%        9.4%       9.5%      9.6%      9.7%      9.7%      9.7%
Console               1294.00    2199.00       2330.00   2741.00   3095.45   3374.04   3643.96   3899.04     4132.98    4339.63   4513.21   4648.61   4788.07   4931.71
% Growth                          69.9%          6.0%     17.6%     12.9%      9.0%      8.0%      7.0%        6.0%       5.0%      4.0%      3.0%      3.0%      3.0%
% Total                           51.4%         52.4%     51.5%     53.1%     53.8%     54.5%     55.0%       55.3%      55.5%     55.6%     55.6%     55.6%     55.7%
Handheld               237.00     244.00        184.00    157.70    162.43    170.55    180.79    195.25      214.77     231.96    245.87    255.71    263.38    271.28
% Growth                           3.0%        -24.6%    -14.3%      3.0%      5.0%      6.0%      8.0%       10.0%       8.0%      6.0%      4.0%      3.0%      3.0%
% Total                            5.7%          4.1%      3.0%      2.8%      2.7%      2.7%      2.8%        2.9%       3.0%      3.0%      3.1%      3.1%      3.1%
Distribution           227.00     423.00        378.00    490.95    510.10    533.05    555.44    577.11      597.88     617.61    636.14    655.22    674.88    695.13
% Growth                          86.3%        -10.6%     29.9%      3.9%      4.5%      4.2%      3.9%        3.6%       3.3%      3.0%      3.0%      3.0%      3.0%
% Total                            9.9%          8.5%      9.2%      8.8%      8.5%      8.3%      8.1%        8.0%       7.9%      7.8%      7.8%      7.8%      7.9%
Other*                  17.00          1.00                 0.00
% Growth                         -94.1%       -100.0%
% Total                            0.0%          0.0%
Total Revenue         3026.00    4279.00       4447.00   5320.09   5826.53   6271.20   6691.24   7092.29     7472.39    7816.40   8116.09   8365.94   8608.93   8850.81
% Growth                          41.4%          3.9%     19.6%      9.5%      7.6%      6.7%      6.0%        5.4%       4.6%      3.8%      3.1%      2.9%      2.8%
% Total




                                                                                                                    UOIG 14
 University of Oregon Investment Group                                                                                             November 30, 2011


Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)                         2008A       2009A       2010A       2011E       2012 E      2013 E       2014 E       2015 E       2016 E       2017 E       2018 E       2019 E       2020 E       2021 E
Total Revenue                           $3,026.00   $4,279.00   $4,447.00   $5,320.09   $5,826.53    $6,271.20    $6,691.24    $7,092.29    $7,472.39    $7,816.40    $8,116.09    $8,365.94    $8,608.93    $8,850.81

Current Assets
Cash & Cash Equivalents                  2958.00     2768.00     2812.00     3600.00      4292.50     4620.10      4929.55      5225.00      5505.03      5758.47      5979.26      6163.32      6342.34      6520.54
% of Revenue                                98%         65%         63%         68%          74%         74%          74%          74%          74%          74%          74%          74%          74%          74%
Accounts Receivable                       974.00      739.00      640.00      363.37      1074.12     1156.10      1233.53      1307.46      1377.54      1440.95      1496.20      1542.26      1587.06      1631.65
Days Sales Outstanding A/R               117.49       63.04       52.53       24.93        67.29       67.29        67.29        67.29        67.29        67.29        67.29        67.29        67.29        67.29
% of Revenue                                32%         17%         14%          7%          18%         18%          18%          18%          18%          18%          18%          18%          18%          18%
Inventory                                 262.00      241.00      112.00      229.75       289.62      301.02       307.80       297.88       298.90       312.66       324.64       334.64       344.36       354.03
Days Inventory Outstanding                52.00       38.13       19.23       51.66        44.90       45.87        45.35        42.68        40.54        40.43        40.43        40.43        40.43        40.43
% of Revenue                               8.7%        5.6%        2.5%        4.3%         5.0%        4.8%         4.6%         4.2%         4.0%         4.0%         4.0%         4.0%         4.0%         4.0%
Short-Term Investments                     44.00      477.00      696.00     1041.54       601.91      647.84       691.23       732.66       771.93       807.47       838.43       864.24       889.34       914.33

% of Revenue                               1.5%        11.1%       15.7%      18.0%        10.3%       10.3%        10.3%        10.3%        10.3%        10.3%        10.3%        10.3%        10.3%        10.3%
Software Development                      235.00       224.00      147.00     246.14       302.98      344.92       401.47       461.00       523.07       547.15       568.13       585.62       602.62       619.56

% of Revenue                                7.8%        5.2%        3.3%        4.6%        5.2%        5.5%         6.0%         6.5%         7.0%         7.0%         7.0%         7.0%         7.0%         7.0%
Intelectual Property License                35.00       55.00       45.00       70.71       66.76       71.86        76.67        81.27        85.62        89.56        93.00        95.86        98.64       101.42

% of Revenue                               1.2%         1.3%        1.0%       1.3%         1.1%        1.1%         1.1%         1.1%         1.1%         1.1%         1.1%         1.1%         1.1%         1.1%
Deferred Income taxes, net                536.00       498.00      640.00     902.57       837.22      901.12       961.48      1019.10      1073.72      1123.15      1166.22      1202.12      1237.03      1271.79

% of Revenue                               17.7%       11.6%       14.4%       17.0%       14.4%        14.4%        14.4%        14.4%        14.4%        14.4%        14.4%        14.4%        14.4%        14.4%
Intangible assets, net                      14.00        0.00        0.00        0.00        0.00         0.00         0.00         0.00         0.00         0.00         0.00         0.00         0.00         0.00

% of Revenue                                 0%           0%          0%         0%           0%          0%           0%           0%           0%           0%           0%           0%           0%           0%
Other current assets                      201.00       327.00      293.00     237.96       404.44      435.31       464.46       492.30       518.69       542.56       563.37       580.71       597.58       614.37

% of Revenue                                 7%          8%          7%          4%           7%          7%           7%           7%           7%           7%           7%           7%           7%           7%
Total Current Assets                     5259.00     5329.00     5385.00     6692.04      7869.55     8478.25      9066.19      9616.68     10154.49     10621.98     11029.23     11368.76     11698.97     12027.67
% of Revenue                               174%        125%        121%        126%         135%        135%         135%         136%         136%         136%         136%         136%         136%         136%
Long Term Assets
Net PP&E Beginning                                                                            210         270          323          367          401          422          429          453          481          508
Capital Expenditures and acquisitions     113.40        69.00       97.00     119.27       108.63      120.69       131.70       142.52       153.19       163.65       173.52       182.61       190.74       198.87
Depreciation and Amortization                                                                 -49         -67          -87         -109         -132         -157         -150         -154         -164         -190
Net PP&E Ending                               0.0         0.0         0.0         0.0        270          323         367           401          422          429          453          481          508          516
Total Current Assets & Net PP&E             5259        5329        5385                    8139        8801         9433        10018        10577        11051        11482        11850        12206         12544
% of Revenue                                    0           0           0          0          5%          5%           5%           6%           6%           5%           6%           6%           6%           6%
Current Liabilities
Accounts Payable                          319.00      302.00      363.00      456.86       500.35      538.54       574.61       609.05       641.69       671.23       696.97       718.42       739.29       760.06
% of Revenue                                11%          7%          8%          9%           9%          9%           9%           9%           9%           9%           9%           9%           9%           9%
Accrued Expense and Other Liabilities     842.00      779.00      818.00     1142.49      1251.25     1346.74      1436.95      1523.07      1604.70      1678.58      1742.93      1796.59      1848.77      1900.72
% of Revenue                                28%         18%         18%         21%          21%         21%          21%          21%          21%          21%          21%          21%          21%          21%
Deferred Revenue                          923.00     1426.00     1726.00     2074.83      2330.61     2508.48      2676.50      2836.91      2988.96      3126.56      3246.44      3346.37      3443.57      3540.32
% of Revenue                                31%         33%         39%         39%          40%         40%          40%          40%          40%          40%          40%          40%          40%          40%
Total Current Liabilities                2084.00     2507.00     2907.00     3674.19      4082.21     4393.76      4688.05      4969.04      5235.35      5476.37      5686.34      5861.39      6031.63      6201.10
% of Revenue                                69%         59%         65%         69%          70%         70%          70%          70%          70%          70%          70%          70%          70%          70%




                                                                                                                                                  UOIG 15
 University of Oregon Investment Group                                                                November 30, 2011


Appendix 5 – Discounted Cash Flows Analysis Assumptions

                       Discounted Free Cash Flow Assumptions
Tax Rate                        32.24% Terminal Growth Rate                     3.00%
Risk Free Rate                   2.26% Terminal Value                           27,975
Beta                               0.72 PV of Terminal Value                    12,648
Market Risk Premium              7.00% Sum of PV Free Cash Flows                 5,603                                         Considerations
% Equity                       100.00% Firm Value                               18,250
% Debt                           0.00% Total Debt                                    0                  Current Reinvestment Rate                 60.93%
Cost of Debt                     0.00% Cash & Cash Equivalents                   2,469                  Reinvestment Rate in Perpetuity           13.65%
CAPM                             7.31% Market Capitalization                        15                  Implied Return on Capital in Perpetuity   14.65%
WACC                             7.31% Fully Diluted Shares                      1,181                  Terminal Value as a % of Total             64.5%
                                        Implied Price                             15.5                  Implied 2013 E EBITDA Multiple               6.9x
                                        Current Price                             11.9                  Implied Terminal Year Multiple               3.1x
                                        Undervalued                            30.09%                   Terminal Free Cash Flow Growth Rate           2%




                                                                      Beta       SD         Weighting
                                                      5 year weekly     0.75         0.08    25.00%
                                                      5 year Monthly 0.60            0.22     0.00%
                                                      3 year weekly     0.62         0.09    25.00%
                                                                      0.73
                                                      Vasicek Beta 3 Year weekly             25.00%
                                                                      0.79
                                                      Vasicek Beta 5 year weekly             25.00%
                                                                       0.72
                                                      Activision Blizzard Inc Beta




                                                                                                                 UOIG 16
 University of Oregon Investment Group                                                          November 30, 2011


Vasicek Beta 5 Year weekly
               Company                Beta            Weighting             SD      Variance


Nintendo                                 0.62           16.67%               0.10        0.01
Konami Corporation                       0.72           16.67%               0.10        0.01
Electronic Arts                          0.99           16.67%               0.09        0.01
Take Two Interactive Software, Inc       1.07           16.67%               0.14        0.02
Intuit Inc                               0.70           16.67%               0.06        0.00
Microsoft                                0.78           16.67%               0.06        0.00
                                     Industry    Activision Blizzard Inc
Beta                                     0.81                       0.75
Variance                                 0.01                       0.01
Weight                                   56%                       44%
Vasicek Beta                              0.79

Vasicek Beta 3 Year weekly
               Company                Beta             Weighting            SD      Variance


Nintendo                                 0.53             17%                0.14       0.02
Konami Corporation                       0.62             17%                0.12       0.01
Electronic Arts                          1.02             17%                0.12       0.02
Take Two Interactive Software, Inc       1.12             17%                0.16       0.02
Intuit Inc                               0.71             17%                0.08       0.01
Microsoft                                0.84             17%                0.08       0.01
                                      Industry    Activision Blizzard Inc
Beta                                      0.81                       0.62
Variance                                  0.01                       0.01
Weight                                    62%                       38%
Vasicek Beta                              0.73




                                                                                                        UOIG 17
 University of Oregon Investment Group                                                                                                                 November 30, 2011


Appendix 6 –Sensitivity Analysis

                                                                                                                    Implied Price
                                                                                                                            Terminal Growth Rate
                                                                                                  15           2.0%        2.5%       3.0%                  3.5%           4.0%
                                                                                                0.52           18.76      20.84       23.63                 27.59          33.64




                                                                 Adjusted Beta
                                                                                                0.62           15.66      17.02       18.77                 21.08          24.27
                                                                                                0.72           13.39      14.33       15.50                 16.97          18.89
                                                                                                0.82           11.65      12.34       13.15                 14.16          15.41
                                                                                                0.92           10.29      10.80       11.39                 12.10          12.97
Appendix 7 – Expense Model
                                                    2008A         2009A                     2010A        2011 E      2012 E      2013 E      2014 E      2015 E      2016 E      2017 E      2018 E      2019 E      2020 E      2021 E
Cost of sales—product costs                              1160                       1432         1350          1436        1398        1380        1338        1418        1494        1563        1623        1673        1722        1770
%oftotalRev                                            38.33%                     33.47%       30.36%       27.00%      24.00%      22.00%      20.00%      20.00%      20.00%      20.00%      20.00%      20.00%      20.00%      20.00%
Cost of sales—MMORPG                                       193                        212          241           213         227         238         248         255         276         297         308         318         327         336
%oftotalRev                                             6.38%                      4.95%        5.42%         4.00%       3.90%       3.80%       3.70%       3.60%       3.70%       3.80%       3.80%       3.80%       3.80%       3.80%
Cost of sales—software royalties and amortization          267                        348          338           372         442         464         490         519         546         571         593         612         629         647
%oftotalRev                                             8.82%                      8.13%        7.60%         7.00%       7.58%       7.39%       7.32%       7.32%       7.31%       7.31%       7.31%       7.31%       7.31%       7.31%
Cost of sales—intellectual property licenses               219                        315          197           160         287         314         401         355         374         391         406         418         430         443
%oftotalRev                                             7.24%                      7.36%        4.43%         3.00%       4.93%       5.00%       6.00%       5.00%       5.00%       5.00%       5.00%       5.00%       5.00%       5.00%
Product development                                        592                        627          642           692         699         721         870         922         971       1016        1055        1088        1119        1151
%oftotalRev                                            19.56%                     14.65%       14.44%       13.00%      12.00%      11.50%      13.00%      13.00%      13.00%      13.00%      13.00%      13.00%      13.00%      13.00%
Sales and marketing                                        464                        544          520           585         717         763         825         905         965       1029        1092        1144        1199        1256
%oftotalRev                                            15.33%                     12.71%       11.69%       11.00%      12.30%      12.17%      12.32%      12.76%      12.92%      13.17%      13.45%      13.68%      13.93%      14.19%
General and administrative                                 271                        395          364           426         437         455         485         514         542         567         588         607         624         642
%oftotalRev                                             8.96%                      9.23%        8.19%         8.00%       7.50%       7.25%       7.25%       7.25%       7.25%       7.25%       7.25%       7.25%       7.25%       7.25%
Impairment of intangible assets                              0                        409          326           300         328         353         377         399         421         440         457         471         485         498
%oftotalRev                                             0.00%                      9.56%        7.33%         5.63%       5.63%       5.63%       5.63%       5.63%       5.63%       5.63%       5.63%       5.63%       5.63%       5.63%
Restructuring                                               93                         23            0            27          15          16          17          18          19          20          20          21          22          22
%oftotalRev                                             3.07%                       .54%        0.00%          .50%        .25%        .25%        .25%        .25%        .25%        .25%        .25%        .25%        .25%        .25%
Total expenses                                           3259                       4305         3978          4210        4550        4703        5050        5306        5609        5894        6143        6351        6558        6764
% of Revenue                                          107.70%                    100.61%       89.45%       79.13%      78.09%      74.99%      75.48%      74.81%      75.06%      75.41%      75.69%      75.92%      76.17%      76.43%




                                                                                                                                                                     UOIG 18
 University of Oregon Investment Group   November 30, 2011


Appendix 8 – Sources



      SEC Filings 10-k and 10-Q
      Sec.gov
      Company Investor Relations page
      Earnings call
      IBIS World
      Factset
      Reuters
      finance.yahoo.com
      Gamespy.com
      Activision.com
      ActivisionBlizzard.com
      Blizzard.com




                                                 UOIG 19

				
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